What Makes an Investment "Risky?"

What Makes an Investment "Risky?"

Posted By
The Legacy Group

A few years ago, I had a chance to attend a roundtable conference with
local business owners. My intention was to meet with at least 3 people
who might be able to help move my business forward, either through identifying
a borrower, finding a really good real estate deal, or to possibly discuss
investments available within my business at the time. In other words,
I was looking to raise some capital for some deals.

Thankfully, I was able to talk to at least one person about investing some
money, and as I described our business model to him, the topic of risk
came up. He said to me, "Isn't that risky?"

Now, personally, I love when this topic comes up because it allows me to
put on my educator hat and talk about the difference between “risk”
and “risky.” Everything has risk, I told him. There is risk
in you walking down the street with your net worth in your briefcase.
There is risk with just putting your money under your mattress or in a
safety deposit box. So, in essence, the
amount of risk may then lead you to determine if something is “risky.”
To this, he agreed.

I then asked him, "If you knew the downside was covered, how many
deals would you get involved with?” In other words, if you had a
very high comfort level for covering the downside, would you still consider
a deal to be “risky?”

I shared with him that “risky” is associated with lack of the
right financial education, and that the banker's mentality is to cover
the downside first. We manage risk by studying it, managing it, and covering
it as much as possible. While it is impossible to eliminate all risks,
if we can manage these risks to the largest extent possible, we can maximize
profits by rarely losing.

This is what I call the “Banker's Code Investment Strategy.”

Smart Real Estate Investments with Minimal Risk

At The Legacy Group, our Real estate investment experts understand how
to cover our clients’ downside and maximize their return through
smart strategies and careful planning. If you are interested in growing
your wealth by adding
small balance real estate to your portfolio, call (719) 578-8387 today.